AirAsia gets US$1b offer to buy its leasing company

A man walks past an AirAsia advertisement at Kuala Lumpur Sentral railway station in Kuala Lumpur on May 26.
A man walks past an AirAsia advertisement at Kuala Lumpur Sentral railway station in Kuala Lumpur on May 26. PHOTO: AFP

SINGAPORE/KUALA LUMPUR (BLOOMBERG) - AirAsia Bhd, the region's biggest discount carrier, got an offer of about US$1 billion to buy its aircraft- leasing company, amid a surge in the business in the continent. The shares gained.

The airline intends to divest the business at some point, group chief executive officer Tony Fernandes said in an interview with Bloomberg Television on Monday (May 30). The offer for Asia Aviation Capital Ltd, the leasing company that's fully owned by AirAsia, needs to be discussed further with the board, Mr Fernandes said, declining to offer further details.

"We actually had an offer to buy it and I think this is a very powerful cash generator," Mr Fernandes said. "At some point, we will divest in this asset. There's tremendous value and cash equation there."

AirAsia shares gained as much as 4.2 per cent in Kuala Lumpur after Mr Fernandes made the comments. The airline's shares have jumped 92 per cent this year, helped by the carrier's surge in profits.

"It was interesting that we haven't even gone to the market and someone approached us on it, because obviously we have some very valuable assets in our A320s and a very strong order book," Mr Fernandes said.

As airlines serving Asia Pacific move to triple their fleet, they're finding it can be cheaper to lease jets instead of buying them from Boeing or Airbus. The leasing business can be more lucrative than operating an airline, which has prompted conglomerates led by Hong Kong billionaires Li Ka-shing and Cheng Yu-tung to enter the industry.

AirAsia, one of the biggest customers of Airbus's single- aisle A320 jets, started the leasing company in 2014. It made its first deal outside the group by leasing out aircraft to Pakistan International Airlines Corp, Mr Fernandes said, adding that more airlines are seeking to rent its planes.

Airlines in Asia will fly more than 16,000 planes within 20 years, almost tripling the current number, according to estimates by Boeing.

AirAsia's jet-leasing arm is a potential candidate for a stock exchange listing that could command half the value of its US$2 billion airline operation, Mr Fernandes said in 2014. Free cash-flow of about US$40 million to US$50 million will be generated in the spun-off unit's first few years, before expanding toward US$100 million as it taps demand for planes from airlines in China and Africa, he said then.